Bitcoin sell-off may have played a key role in increasing gold’s attractiveness


May is the test time for Bitcoin and other cryptocurrencies (Bitcoin). Due to the profit-taking sentiment of traders, the flagship digital asset has oscillated after rising to nearly $65,000 in mid-April.

Elon Musk accelerates the sell-off Change his company’s plan Accept Bitcoin as payment for Tesla electric cars.

Later this month, the People’s Bank of China Reiterate Oppose the use of virtual currency to make payments to the country’s financial institutions.Chinese authorities also Start paying close attention Regarding crypto mining-the process of computer mining cryptocurrencies such as Bitcoin.

More blows to the cryptocurrency industry come from the U.S. tax and currency authorities, including Federal Reserve Chairman Jerome Powell, who suggested that more supervision is needed.

All in all, a series of negative updates caused the cryptocurrency market to lose more than 500 billion U.S. dollars in May. As a benchmark digital asset, Bitcoin also bears the brunt of the downward pressure. Down 35.50% in the month.

After the May crash, Bitcoin is experiencing a sharp trend reversal on its monthly chart. Source: BTCUSD on TradingView

At the same time, the physical gold exchange-traded fund (ETF) set its strongest month since September 2020 in May 2021. According to data provided by the World Gold Council, the Global Fund attracted a total of US$3.4 billion, compared with US$4.8 billion in September. World Championships).

Specifically, US gold ETF inflows amounted to US$2.1 billion. The European Gold ETF reported deposits worth $1.6 billion. Nonetheless, Asian funds that track precious metal prices have noticed an outflow of approximately US$300 million.

Gold ETF flowchart. Source: WGC

Strong demand for gold ETFs has also pushed up its spot prices. As a result, the XAU/USD exchange rate rose by 7.6% in May to 1,912.785 US dollars per ounce.

Negative correlation

The opposite trends in the Bitcoin and gold markets indicate that a short-term negative correlation is brewing between them.In addition, Wall Street veterans Nick Colas and Jessica Rabe also Wrote in their DataTrek research report The sell-off of virtual currencies may increase the attractiveness of gold among institutional investors.

Market strategists expect Bitcoin to be a riskier alternative to gold. At the same time, they pointed out that the value of precious metals will not fall by half within five weeks because of Elon Musk’s tweets, and they will not respond to policymakers’ threats of bans.

“In contrast to virtual currencies, gold is an investment without drama. [Therefore], We continue to recommend a diversified portfolio to hold 3-5% gold positions. “

For wealthy and small retail investors seeking quick profits, Bitcoin is largely a speculative bet. But the fixed supply of BTC also benefits from concerns about rising inflation, similar to gold. Companies including Tesla, Ruffer Investments, Square, and MicroStrategy added Bitcoin to their cash management balance sheets.

They did this to offset the inflation risk brought by the Fed’s policy. An unprecedented expansionary policy, Including near-zero interest rates and a monthly asset purchase plan of $120 billion.

High-profile investments played a key role in doubling the price of Bitcoin in the first quarter of 2021, and by mid-April, the increase in debt-driven leveraged bets and the influx of new retail traders into the market further pushed it up to around $65,000.

On the other hand, the gold ETF reported that there had been capital outflows for six consecutive months before May 2021. JPMorgan Chase analysts reported in January 2021 that gold ETFs lost approximately US$7 billion in the same period, and Grayscale Bitcoin Trust (GBTC), New York’s Grayscale Investments attracted US$3 billion.

Insufficient injection of precious metals funds also lowered spot quotations; XAU/USD closed down 10.14% in the first quarter of 2021, while Bitcoin’s return rate was 100%.

In May 2021, another JPMorgan Chase report indicated that large institutional investors make profits through Bitcoin in order to seek golden opportunities.they Quote The open interest data of the Chicago Mercantile Exchange Bitcoin futures contract showed the biggest drop since October 2020. JPMorgan Chase analysts said:

“Bitcoin traffic conditions continue to deteriorate, indicating that institutional investors will continue to tighten.”

As of 2021, Bitcoin (orange) and gold (pink) are showing negative trends. Source: TradingView

These statements also appeared in Ruffer Investments, a British fund that manages approximately $33.95 billion in funds for the wealthy and charities, announced on Tuesday that it had unloaded all of its bitcoin positions and made a profit of $1.56 billion.

Duncan MacInnes, Ruffer’s investment director, tell “Financial Times” stated that they have shifted their funds to gold, commodity stocks and inflation-protected bonds.

Macinnes added that Bitcoin is still “on the menu” for Ruffer’s future potential investments, and pointed out that the world urgently needs new safe-haven assets to withstand ultra-low bond yields.